As the world becomes more digitized almost every consumer participates in online shopping. Forbes estimates in the U.S. that 20.1% of all retail purchases in 2024 will be online, and around 34% of consumers shop online at least once a week. All around the country, lawmakers have been attempting to take advantage of that revenue by imposing some form of new tax. Colorado was the first to implement a Retail Delivery Fee in 2022, and Minnesota quickly followed, implementing its policy in July of 2024. Washington State is now considering the possibility of a similar retail delivery fee.
Put simply, a Retail Delivery Fee (RDF) is a fee imposed on the delivery of retail items delivered by motor vehicles in a state. Washington state wants these fees to help fund transportation projects such as potholes and traffic mitigation. Senate Transportation Chair Marko Liias commented, “clearly our cities, our counties and our state have transportation challenges with too many potholes and too much traffic.” He went on to say, “This is one of a number of things we’re looking at to come up with the resources to make the needed investments.”
While Colorado’s model charges roughly 28 cents on every delivery, and Minnesota charges 50 cents on deliveries $100 or more, Washington has been investigating rates from 25 to 75 cents.
Colorado’s Revised Statute (C.R.S) S43-4-218 was adopted in 2022 and “imposes a Retail Delivery Fee on deliveries by motor vehicle to a location in Colorado with at least one item of tangible personal property subject to state Sales or Use Tax. The retailer or marketplace facilitator that collects the Sales or Use Tax on the tangible personal property sold and delivered, including delivery by a third party, is liable to remit the Retail Delivery Fee. Deliveries include when any taxable goods are mailed, shipped, or otherwise delivered by motor vehicle to a purchaser in Colorado.”
According to the Colorado law, the state must publish the data every year of the rates charged. This can be found below.
The new law almost immediately impacted small business in Colorado. In 2023, the state responded by creating a small business exemption. This exempts businesses with retail sales of $500,000 or less in Colorado sales tax from the fee. The reactionary legislation also gave businesses the choice to either charge the 27-cent fee to the customer or cover the cost itself.
As Minnesota followed Colorado’s example, it was met with pushback from across the country. A notable response was from the Council on State Taxation:
“A delivery fee mandated on nearly every Minnesota consumer is regressive and will negatively impact all families, as well as place an undue burden on businesses . . . As the state looks for thoughtful solutions to solve transportation challenges, the consumer delivery fee has undeniable impacts and insurmountable challenges.”
While the implementation and charge may vary, research clearly shows a negative impact, particularly among those who are mobility-challenged, elderly, and low-income. In fact, those categories make up the largest consumer base of those who order retail items online – particularly in the food service delivery sector.
As recently as 2019, it was estimated that 52% of the population making less than $10,000 used a restaurant delivery website or app at least once in the last 90 days.
Source: Washington State Department of Revenue
A retail delivery fee has consequences for both the retailer and the consumer. On the one hand, legislation that assigns the fee to the business may hurt the ability of the company to hire more employees, expand or even make a profit. On the other, allowing the fee to be passed on to the consumer raises prices, thereby hurting both the customer and the business.
In Colorado, exemptions were adopted for some small businesses below $500,000 in annual sales, providing a perverse incentive for businesses to stay below the threshold. In most cases, the fee is pushed onto the consumer, regardless of the fact the vehicle delivery method was likely already subject to the state’s gas tax. In essence, policymakers would be charging a double tax – one on the product delivery, the other on the gas to deliver it.
This fee also indirectly adds to the bureaucratic burden for small business, and the bureaucratic implementation for government. In Colorado, the vendor must somehow indicate the retail delivery fee on each invoice, which can add hours to the accounting for a business. Colorado did attempt to fix this problem by giving the business an option to incorporate the fee into the price of the product.
Creating new processes and procedures, however, can be a costly addition to any operation. Similarly, the state government would have to create a separate account for impacted retailers and would have to ensure compliance with the passed measures. This would involve additional taxpayer supplied staff needed to oversee the already costly program.
Retail delivery fees are becoming more popular for policymakers attempting to make up for the loss of gas tax-related revenue due to electric vehicles. But the benefit for any government will come at the expense of businesses and consumers.
In Washington state, delivery drivers already pay almost 50 cents per gallon in state fuel tax. This does not include the cost of the federal gas tax – $.184 per gallon – or the impact of the state’s cap and trade policies, estimated at roughly $.50 per gallon. In total, consumers pay about one dollar per gallon in taxes and fees in Washington. In Idaho and Montana, the state gas tax alone exceeds 30 cents per gallon.
While some lawmakers may want to use a retail delivery tax as a clever and inconspicuous way to raise revenues for transportation projects, they would be wise to respond to these proposals by marking “return to sender.”